Office of Publications & Special Studies

The role of younger and older business establishments in the U.S. labor market

The American economy is characterized by dynamic change and a constant churning of workers and businesses. Workers enter and exit the labor force and change jobs, while new businesses are formed and less successful ones fail. New businesses as well as existing businesses that are expanding create jobs and introduce innovative practices to the marketplace. The long-standing debate about the role and impact of small versus large businesses has expanded in recent years to consider the contributions of younger versus older businesses. New data from the BLS Business Employment Dynamics (BED) program that measure employment and business survival rates by the age of the establishment can help shed light on the behavior and contributions of new and young businesses compared with their older and more well-established counterparts. These new data are tabulated at the establishment level. An establishment is an economic unit that produces goods or services, usually at a single physical location, and engages in one or predominantly one activity, whereas a firm can comprise one or more establishments under common ownership by a corporate parent.

Age of business establishments

In March 2009, about half of all private sector business establishments were 10 years or older, 24 percent were 4 to 9 years old, and 27 percent were less than 4 years old. (See chart 1.) The older establishments—those more than 10 years old—employed 71 percent of total private sector jobs, while establishments 4 to 10 years old accounted for 18 percent of employment, and establishments less than 4 years old accounted for 11 percent of employment. (See chart 2.) These new data, which show the number of establishments and employment by age of the establishment, can be used to follow a cohort of establishments over time. A cohort is defined in this report as those establishments that opened during a given year.

Survival of opening establishments

Chart 3 shows survival rates for the cohort of establishments that opened in March 1994. The bars in the chart labeled "Establishments" indicate what portion of all openings in March 1994 survived to a given year. The bars in the chart labeled "Employment" show employment of the surviving establishments as a percent of the cohort’s initial employment. The data in chart 3 show that 26 percent of the establishments that opened in March 1994 were still in business in 2009, employing 62 percent of the cohort’s initial employment.

Age and survival matrix

Table 1 shows the number of establishments by age of the establishment for the 1994–2009 period, and table 2 shows total private sector employment by age of the establishment for the same period. The columns in table 1 show the distribution of establishments by the age of the establishment for a specific year. Among the 5.5 million active establishments in March 1994, for example, 4.9 million were born before March 1993 and 550,308 were less than a year old, having opened after March 1993 and before March 1994. In March 2009, the number of establishments born before March 1993 was 2.3 million, while the number of surviving establishments that opened after March 1993 (and having an age of 15 years or less) totaled 4.5 million. In March 2009, about two-thirds (66.4 percent) of all active establishments had opened after March 1993. The columns in table 2 show the employment distribution by age of establishments. In March 1994, the establishments that had been born before March 1993 employed 87.2 million (95.5 percent) of the total 91.3 million jobs, whereas in March 2009 the establishments that had been born before 1993 employed 57.8 million (54.4 percent) of the total 106.2 million jobs.

The rows in table 1 show a time series of the number of establishments for a given age. For example, the first row shows the number of establishments that are less than a year old—establishments that opened during the previous year. The number of establishment openings during the period from March 2008 to March 2009 is a record low for both the lowest number of openings and the lowest number of jobs gained from openings since the data series began in March 1994. The number of establishment openings fell from 626,845 in March 2008 to 549,377 in March 2009, representing 77,468 fewer openings. In March 2008, opening establishments accounted for 3.3 million jobs, which fell to 2.8 million jobs in March 2009, a decrease of half a million jobs. The largest number of openings occurred in March 2006, when 667,341 establishments opened representing 3.6 million jobs. The largest number of jobs attributable to openings occurred in March 1999, when 609,569 establishments opened with 4.7 million jobs. (See tables 1 and 2.) Since then, the number of jobs from establishment openings has been on a downward trend, falling sharply in the 2001 recession and then again in 2009 during the recent economic downturn.

The diagonals in table 1 can be used to determine the number of establishment deaths for different cohorts. For the cohort of 550,308 establishments that opened in March 1994, for example, 439,281 had survived for 1 year and thus 111,027 had gone out of business. After 15 years (March 2009), 143,308 establishments (26.0 percent) of the 550,308 establishments that opened in March 1994 were still in business. The statistics on the diagonals of table 2 show the employment levels of surviving establishments. The 550,308 establishments that opened in March 1994 opened with about 4.1 million jobs. The 439,281 establishments that survived for 1 year had 4.1 million jobs in March 1995, and the 143,308 establishments that survived for 15 years had employment of 2.6 million in March 2009, or 61.9 percent of the cohort’s initial employment.

The trend line in chart 3 labeled "Average size of survivors" is calculated by dividing the employment levels in table 2 by the number of establishments in table 1. This line shows that for the cohort of establishments that opened in March 1994, the average size of surviving establishments is increasing over time: from 7.5 employees per establishment in 1994 to 17.8 employees per establishment in 2009. There are at least two possible reasons that the average size of surviving establishments increases over time. First, the employment levels at the surviving establishments are likely to grow from their initial levels. Second, if smaller establishments are more likely to die and larger establishments are more likely to survive, the composition effect of a declining number of smaller establishments and a growing number of larger establishments will increase the average size of surviving establishments.

This Issues paper was prepared by economists Carol Leming, Akbar Sadeghi, James R. Spletzer, and David M. Talan of the Office of Employment and Unemployment Statistics, Bureau of Labor Statistics. The data in this report are from the Business Employment Dynamics (BED) program at the Bureau of Labor Statistics. The data by age of establishment highlighted in this report are annual (not quarterly), with a reference date of March, and are created by comparing employment and the number of establishments from March in the reference year to March in the previous year. The age of establishments is defined using the first quarter in which an establishment reports positive employment in the Quarterly Census of Employment and Wages (QCEW). The BED data series starts in the second quarter of 1992, and thus the first measurable annual (March to March) comparison is March 1993 to March 1994. For more information, contact Akbar Sadeghi. Email: Sadeghi.akbar@bls.gov; Telephone: (202) 691-5094. Information in this report will be made available to sensory-impaired individuals upon request. Voice phone: (202) 691-5200. Federal Relay Service: 1-800-877-8339. This report is in the public domain and may be reproduced without permission.

Table 1. U.S. total number of private sector establishments by age

Age class

March 1994

March 1995

March 1996

March 1997

March 1998

March 1999

March 2000

March 2001

New openings

Less than 1 year old

550,308

584,184

588,326

614,966

609,584

609,569

634,276

630,875

Surviving establishments

1 year

439,281

462,440

464,613

484,847

491,318

485,427

500,436

2 years

376,955

400,420

397,930

422,260

421,058

412,144

3 years

336,753

353,160

355,231

372,473

367,167

4 years

301,872

319,643

318,382

329,015

5 years

276,271

289,156

287,106

6 years

252,261

263,137

7 years

231,645

8 years

9 years

10 years

11 years

12 years

13 years

14 years

15 years

Born before March 1993

4,929,617

4,594,292

4,288,218

4,036,175

3,787,248

3,585,936

3,383,450

3,198,075

Total

5,479,925

5,617,757

5,715,939

5,852,927

5,934,641

6,060,228

6,156,483

6,219,600

Table 1. Continued—U.S. total number of private sector establishments by age

Age class

March 2002

March 2003

March 2004

March 2005

March 2006

March 2007

March 2008

March 2009

New openings

Less than one year old

612,069

609,378

602,667

632,510

667,341

656,107

626,845

549,377

Surviving establishments

1 year

476,603

480,147

482,456

476,970

505,825

522,402

506,611

466,388

2 years

420,217

407,194

413,127

417,061

416,725

434,755

441,487

415,846

3 years

359,735

370,872

362,695

368,526

374,177

369,646

380,100

374,366

4 years

326,578

324,227

336,672

330,536

336,474

337,285

329,503

329,953

5 years

295,624

296,814

297,045

308,498

303,956

308,761

305,318

290,769

6 years

261,977

271,612

274,497

274,316

286,307

280,488

283,457

272,627

7 years

241,818

242,268

252,155

255,544

256,621

266,809

259,839

256,966

8 years

214,308

225,660

226,438

234,907

240,228

239,862

248,303

236,939

9 years

200,055

212,037

212,058

222,482

225,603

224,308

228,026

10 years

188,375

198,987

200,103

209,328

212,103

206,452

11 years

178,224

188,367

189,026

197,478

196,550

12 years

170,401

178,396

178,765

183,526

13 years

161,338

169,327

167,999

14 years

153,018

158,579

15 years

143,308

Born before March 1993

3,031,547

2,894,237

2,771,252

2,654,487

2,557,451

2,459,019

2,365,639

2,261,431

Total

6,240,476

6,322,464

6,419,416

6,542,624

6,726,458

6,838,825

6,882,101

6,739,102

Table 2. U.S. total private sector employment by establishment age

Age class

March 1994

March 1995

March 1996

March 1997

March 1998

March 1999

March 2000

March 2001

New openings

Less than one year old

4,124,589

4,356,753

4,358,117

4,631,669

4,698,777

4,702,798

4,648,531

4,279,589

Surviving establishments

1 year

4,140,247

4,310,177

4,320,141

4,688,205

4,703,529

4,745,334

4,640,059

2 years

4,015,342

4,264,561

4,243,438

4,606,320

4,706,632

4,565,297

3 years

3,953,116

4,178,140

4,172,895

4,560,353

4,505,182

4 years

3,872,507

4,078,687

4,116,944

4,337,230

5 years

3,741,091

4,012,095

3,943,158

6 years

3,677,756

3,845,425

7 years

3,531,829

8 years

9 years

10 years

11 years

12 years

13 years

14 years

15 years

Born before March 1993

87,161,030

86,090,920

83,851,788

82,239,976

80,544,590

78,675,066

77,189,256

74,855,770

Total

91,285,619

94,587,920

96,535,424

99,409,463

102,225,657

104,680,386

107,656,901

108,503,539

Table 2. Continued—U.S. total private sector employment by establishment age